Report: Auto Czar's Investment Firm Focus of
Pay-to-Play Probe

April 17, 2009 (PLANSPONSOR.com) - According to
media reports, the man named to head the Obama
administration's auto task force is a figure in an ongoing
state-federal probe of potential pay-to-play wrongdoing
focused on New York state's pension program.

A Washington Post article, citing an unnamed source,
said Steven Rattner’s investment firm Quadrangle Group is
one of about a dozen private-equity companies and hedge
funds involved in the
investigation
by the U.S. Securities and Exchange Commission (SEC) and
New York Attorney General Andrew Cuomo.Quadrangle invests in the media and telecom
sectors.

The story said investigators are examining millions
of dollars made by the hedge funds and private
equity firm – known as “placement fees” – to
middlemen firms. The middlemen companies, in turn, gave
the hedge funds and private equity firm a tie-in to the
pension program.

While the “placement fees” are common and not
illegal, the Post said, the news report indicated
the investigators are focusing on whether Quadrangle and
other investment managers were knowingly involved in a
scheme under which they would pay for being chosen as one
of the $122-billion fund’s outside money
managers.

Investigators are also looking at whether
Quadrangle and the other firms properly disclosed using
the middlemen in their attempts to win pension
business.

The SEC Charges

In an amended complaint filed by the Securities and
Exchange Commission (SEC) in federal district court in
Manhattan, the SEC alleges that Raymond Harding, who is a
former leader of the New York Liberal Party, and Barrett
Wissman, a former hedge fund manager, participated in a
scheme that extracted kickbacks from investment management
firms seeking to manage the assets of the New York State
Common Retirement Fund.
The SEC previously charged Henry “Hank” Morris and
David Loglisci
for orchestrating the fraudulent scheme to enrich Morris
and others with close ties to them. Specifically, the SEC
alleges that Wissman arranged some of the payments made to
Morris, and Wissman was rewarded with at least $12 million
in sham “finder” or “placement agent” fees. Harding
received approximately $800,000 in sham fees that were
arranged by Morris and Loglisci, according to the SEC.

“These men put their greed above the interests of New
York’s hard-working public employees,” said Robert Khuzami,
Director of the SEC’s Division of Enforcement in a
statement. “We will continue to unravel this tangled web of
fraud and corruption.”

James Clarkson, Acting Director of the SEC’s New York
Regional Office, added, “Public pension fund investments
are supposed to benefit only the fund’s investors. They are
not a vehicle for repaying political favors or enriching
friends.”

The SEC’s amended complaint alleges that the payments to
Morris, Wissman, Harding and certain others were kickbacks
that resulted from quid pro quo arrangements or that were
otherwise fraudulently induced by the defendants. Loglisci
ensured that investment managers that made the requisite
payments – to Morris, Wissman, Harding, and certain other
recipients designated by Morris and Loglisci – were
rewarded with lucrative investment management contracts,
while investment managers who declined to make such
payments were denied fund business. Morris, Wissman,
Harding and the others who received the payments at issue
did not perform bona fide placement or finder services for
the investment management firms that made the payments.

In a
SEC complaint
filed this week, a senior executive of Quadrangle is
described as having met with David Loglisci, former chief
investment officer for the pension fund, in late 2004 to
solicit pension fund investment business. Citing its
unnamed source, the Post indentified the person as
Rattner, who, as head of the auto task force, is now
working to restructure General Motors and
Chrysler.

The Post said the first meeting was followed by a
second session in which Hank Morris, an adviser to former
Comptroller Alan Hevesi, solicited a "finder fee
arrangement" with Quadrangle, according to the complaint.
Quadrangle signed a contract to pay a placement agency
affiliated with Morris 1.1% of any amount invested by the
pension fund.

The same senior executive is also described in the
SEC complaint as having met with the brother of Loglisci,
regarding a DVD distribution agreement of a low-budget film
the brother produced called "Chooch." Soon after, a company
owned by Quadrangle, GT Brands Holdings, agreed to the
$88,841 distribution deal, according to the Post.

Quadrangle received the investment in September
2005.

A spokesman for Quadrangle said the firm is fully
cooperating with the investigation. It has "produced all
documents requested and our expectation is that no action
will be taken," the spokesman said, according to the
Post.

So far, three people have been charged and one, a
hedge fund executive, has pleaded guilty. Those facing
charges include Morris and Loglisci, who were indicted
last month on 123 criminal counts, including corruption,
bribery and money laundering.